Antonio Flores’ Blog

The title of the post is confusing, contradictory and appears to make little sense; I will admit to that. But at times, the idiosyncrasy of Spanish bureaucracy lends itself to these situations.

The case relates to a client who was selling his property, had been a resident of Spain for 20 years but, because he was not legally obliged to file annual tax returns (he was retired) he did not exist for the Spanish Tax Office and so, he would not be given a Tax Residency Certificate, necessary to avoid the 3% CGT retention on the proceeds when a property is sold.

And because he was so adamant that Spain was his place of retirement, and of his tax residency, he was not going to let the Tax Office get away with it.

So in the knowledge that in the Costa del Sol, if you submit a query to 3 different tax/legal professionals you end up with 4 different opinions, we told him about Hacienda’s Binding Consultation Service, the ultimate official opinion on a tax matter: the case was submitted to the Directorate General of Tax (DGT) for a definitive confirmation of what he had previously read on the subject.

And this was their response:

1. The main document that proves tax residency in Spain is the Tax Residency Certificate.
2. The issuance of an individual Tax Residency Certificate is subject to the applicant proving his/her residency in Spain.
3. Where the above certificate cannot be obtained, the onus of proving Spanish residency lies with the taxpayer who will be able to submit, in support of his claim, alternative evidence: Certificate of “empadronamiento”, children’s school enrollment applications, rental payments, water and electricity receipts etc…).
4. The Spanish Tax Office, based on the widely accepted judicial `principle of free evaluation of the evidence´, will determine whether the applicant is, or isn’t, a tax resident of Spain.

By experience, I will add a fifth item: a certificate of non-residency from the Tax Office of the country of origin. This is not mentioned but we have had it submitted on a prior case and adds considerable weight to the application.

Finally, it is worth noting that the Spanish Tax Office has not commented on the EU residency forms issued by National Police Stations; this is probably because its relevance is relatively low.

Antonio Flores Taxes Agencia Estatal de Administración Tributaria, capital gains tax spain, certificate of non resident, Retirement in Spain, Spain Tax, Spanish Hacienda, Spanish Inheritance Law, spanish property tax, Spanish Residency, taxation in Spain, Taxes in Spain

With the advent of the crisis and the coffers of the Spanish Inland Revenue drying up fast, foreign property owners now seem to be the target of a renewed tax levy campaign, judging by the content of tax office letters received by a few clients. Because whereas before property owners that did had never paid Non-Residents Property Income Tax, an annual tax based on the ratable value (valor catastral), were deemed to be under the radar of the taxman, they are now being specifically pinpointed.

The letters sent by the Hacienda are not openly threatening, if that is possible at all, but a reminder that taxes have to be paid by virtue of owning a Spanish property. The written request states: “based on the information we hold, it appears that you have owned a property in Spain during the years 2008, 2009, […], and, according to our records, you have failed to submit a tax return for Non-Residents Income or Wealth Tax“.

The letter then says that this is neither a tax request nor the commencement of an investigation. However, they seem to have all the information owners were hoping would not be picked up by the taxman, not until the property was sold (time when it would have had to be disclosed, and taxes paid up, if one wants to claim the 3% Capital Gains Tax retention back successfully).

This obviously does not affect tax-abiding property owners, who file they annual returns prior to the 31st of December of the following year (2010 tax is to be paid by the end of 2011), and are expected to pay an average of between €200 to €800, depending on size of property and the municipality; with larger villas paying substantially more. Resident property owners, on the other hand, are exempt from this tax.

Wealth Tax to be reintroduced in 2012

With effect as from 2011 and during the next year, property owners will be taxed again on Property Wealth Tax, having to submit the tax returns in 2012 and 2013, respectively. Residents for tax purposes will have tax breaks on their habitual home, up to a certain value, and an allowance of €700,000, which means that most Spanish residents will effectively be exempt from it.

Finally, nonpayment of due taxes will attract penalties, surcharges and interest and ultimately, a charge on the property so, to avoid unpleasant surprises, we suggest you act promptly by talking to a qualified professional.

If you have questions, you can read this FAQ about non residents tax in Spain.

Documents

• Non resident tax letter being sent by the taxman (PDF – 238Kb)

Antonio Flores Taxes Income and Wealth Tax, Modelo 210, tax spain, Taxes in Spain, valor catastral

Living in Spain as a resident has become a rarity among Spanish elite sports professionals. This includes Fernando Alonso, Sergio Garcia and Jorge Lorenzo, among others, who have their residence in tax havens such as Switzerland. Rafa Nadal and Alberto Contador (2-time Tour the France winner) on the contrary feel that paying taxes in Spain is a moral obligation.

The Spanish Inland Revenue and a couple of smaller political parties want to stop them from representing Spain internationally.They had already tried to implement this law some month ago but was it thrown out.

“Social scourge”, “tax cheaters”, “lacking in solidarity”, “miserable compatriots” are just some of the adjectives used to define these sports stars who could, if a law proposal succeeds, stop performing for Spain in future. But when is a person considered to be a resident in Spain for tax purpose and how can the tax office invoke residency of a certain individual in Spain so that he is forced to pay taxes on world-wide income? As with many other countries, any person staying in Spain for more than 183 days in a fiscal year (ending 31st Dec.) will be deemed a resident for tax purposes and is obliged to submit a tax return on world wide income. Unlike the UK, the 90-day rule does not apply in Spain but on the contrary other points of connection with the latter country do apply. To make it simple, the criteria used is one the following:

1. Spending more than 183 days per tax year.
2. Having the main center of its activities or economical interests, directly or indirectly, in Spain.
3. For companies, having most of the assets, directly or indirectly, in Spain or when the primary activity is carried out, as well as having the management centers, in Spain.

Nowadays it is extremely complex for the Spanish Inland Revenue (and presumably for other Tax Offices in the EU) to determine when is a person resident in Spain for the simple reason that passports don’t get stamped any longer. But if someone gets a letter from the Inland Revenue saying that they have detected that he/she is a resident for tax purposes and request payment of taxes on worldwide income the onus of proof falls on the tax subject. Showing water and electricity bills of a property in a third country is no longer a valid excuse for the Spanish Inland Revenue which has now increased the proof of residency by demanding a Certificate of Residency issued by the tax authorities of the third country, provided this country is not classed as a tax haven and that it has some form of tax information exchange agreement.

Where this third country is a tax haven the Spanish Inland Revenue will only let the tax suspect off the hook if he/she can prove that they are effectively spending more than 183 days per year in this country. The reason is that foreign taxpayers are being issued with what they consider as a “passive residents card” which does not oblige them to declare any income nor, ultimately, pay any taxes (normally only a small investment easy to comply with, such as lodging a few tens of thousands of Euros in a bank account or buying an apartment).

If the Spanish Inland Revenue and the Catalan Party CIU (Convergencia I Unio) can convince the Spanish parliament that fellow compatriots dodging taxes is immoral and that consequently they are to be stripped of the Spanish flag on their endorsements we may soon see Fernando Alonso and Sergio Garcia racing and hitting balls, respectively, for Switzerland, Lorenzo riding for Andorra or Pedrosa also riding but for England, leaving the poor(er) Nadal and Contador the burden of…building roads and council tennis courts for their beloved fellow compatriots.

Antonio Flores Taxes Spanish Inland Revenue, Spanish Residency, Spanish Tax Office, Spanish Taxman, Taxes in Spain